Zillow shares housing market predictions for 2023

Zillow shares housing market forecast for 2023

The ad giant predicts renewed interest in Midwestern markets and a new generation of first-time homeowners, among other things.

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Zillow economists have shared their forecast for the housing market in 2023 as the market looks firmly shifted towards a market marked by interest rates and inflation.

The ad portal giant predicts consumers will need to continue to evolve with the market as housing costs remain high and new markets — such as the affordable Midwest — will emerge as new hotspots as Americans look to make their money work. And more Americans will become first-time homeowners as demand for rentals outstrips demand for mortgages in some markets.

“Americans who find ways to make payments on a roof over their heads will drive the market into the next year,” Zillow chief economist Skylar Olsen said in a statement. “Where costs are lower, we will see healthier sales and inventory levels. If rent is cheaper than a new mortgage, we will see an increase in rental demand, which builders and landlords understand. Affordability will be the most important factor when it comes to housing for 2023, but there is room for optimism on this front if mortgage rates come down.

Bet on the Midwest

As 2021 and the start of 2022 saw the Sun Belt take center stage, housing prices in many of these cities, such as Phoenix, Miami and Tampa, have become unsustainable for many. Meanwhile, the Midwest remains essentially the last region of the country where prices haven’t reached extreme highs, with a typical monthly mortgage payment in Topeka at $1,269 versus $4,129 in Sacramento, Zillow pointed out.

The Midwest also stands out as a healthier market due to its high level of inventory, and homeowners are still willing to list their homes due to continued buyer demand, according to the report.

The rise of condominiums

With many potential buyers barred from home ownership due to high mortgage costs, more people will turn to buying with friends and family, Zillow predicted, citing a survey conducted by the company this spring that found 18% of successful recent buyers had purchased the home with a friend or relative who was not their spouse or partner, with affordability and difficulty in qualifying for a mortgage cited as the main reasons for co-purchasing.

Mortgage payments for a typical US home have risen from 27% of median household income in January to 37% in October – well above the 30% threshold at which economists consider housing a financial burden.

A shift towards rental

With high borrowing costs making homeownership out of reach for more and more Americans, demand will continue to rise in the rental market, Zillow predicts. This will likely manifest itself in a shift from new construction to more multi-family rentals and more first-time homeowners.

Single-family home developers expect price reductions due to a glut of newly built homes during the COVID-19 pandemic construction boom, while multi-family developers feel bolder with the number of multi-family units to begin construction increasing 8% from pre-pandemic levels in October, according to the US Census Bureau. The rise in multi-family permits signals a vote of confidence for rental demand, Zillow economists said, and suggests that the construction of single-family homes for rent could also rise as more Americans rent in recent years. stages of their life.

Additionally, following record high mortgage rates in 2020 and 2021 that allowed many Americans to purchase second homes for investment or vacation, Zillow predicts that many vacation home owners may seize the opportunity to rent out their vacation homes long-term as rents rise. is expected to outpace the growth in home values.

Many homeowners looking to move may also choose to keep and rent their current home instead of foregoing the record mortgage rates they’ve already locked in, Zillow predicted.

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